Doomer fringe converging on the mainstream (Headlines from the Meltdown)

Cardin comments: You know life on planet earth has gotten weird when conventionally respectable mainstream news sources start running stories that sound like what would have formerly been dismissed as the ravings of a conspiracy nut. But — and this is a crucial point — is anybody really listening?

Case in point: an analysis piece from Sunday’s Boston Globe titled “The black box economy” (linked below). Is it really true that there is a global “shadow banking system” operating outside the normal boundaries of what an Economics 101 class would define and accept as economics? Has the financial world really been overtaken by and transformed into a kind of gothic patchwork monster of inconceivable size and complexity, what Bill Gross, manager of Pimco, the world’s largest bond investment fund, recently called a “Frankenstein levered body of shadow banks”? Are the much-vaunted controls and techniques of the central banking system really inadequate to deal with the vast problems now arising from this shadowy system that categorically eludes conventional economic understanding? The Globe devotes a long article to exploring the possibility that it Just Might Be So.

Weird times indeed. While you’re considering this, don’t fail to factor in a comment from the cover story for the February 4 issue of Newsweek, titled “The U.S. Economy Faces the Guillotine” (also linked below). After surveying the mortar-blasted surface of the current American economic landscape, journalist Daniel Gross says, “The current troubles were years in the making, and in retrospect, easy to see coming.”

In retrospect? In retrospect? Well, yes, I suppose so. But only if your sole source of news is the MSM (mainstream media), probably consisting of 95 percent television — not complete news broadcasts or investigative/analytical reports but just snippets of national and, God help us, local newscasts that you’ve half listened to while eating dinner or checking email — and then an additional five percent made up of what has entered your consciousness by means of your local newspaper and publications like Newsweek, which you may have just skimmed for the headlines (or sale ads) instead of actually reading. If that’s your world, then yes, I suppose the fact that the U.S. economy is currently “facing the guillotine” may come as quite a shock since it is only in retrospect that such a possibility is even remotely conceivable.

But if you’ve paid attention to the host of economists, investors, and culture critics, some of them speaking inside the mainstream and some of them outside it, who have been predicting the current crisis for many months and even years now — including Warren Buffet, James Howard Kunstler, Peter Schiff, Bill Gross, Nouriel Roubini, John Michael Greer, Stephen Roach, and many others — then none of this is a surprise. The only surprising thing about it is that it took so long to arrive.

Weird times. No doubt about it. More and more I’m drawn back to my diagnosis of contemporary American culture as a Fahrenheit 451 situation without the book burning. Bradbury pointed out a few years ago that burning books isn’t necessary to destroy a culture. Just get people to stop reading them.

I say we should expand this idea to encompass the broader field of reading in general, not just books but all kinds of print media. Expand it to encompass all media, in fact. Then the maxim becomes, “You don’t have to black out ideas and information to destroy a culture. Just get people to stop to stop caring about them.” For an illustration, consider our supposedly super-informed society with its abundance of books, magazines, newspapers, televisions, broadcast and cable channels, computers, Websites, etc. We’re practically drowning in potential sources of ideas and information. A lot of people have been speaking through these media and predicting severe economic troubles for the U.S. for a long time. And yet mainstream opinion, as gauged by the attitude of Newsweek, holds that the current economic crisis is easily foreseeable “only in retrospect.”

So it’s obviously true that you don’t have to burn books or block any other information source to destroy a culture. Just get people to focus on the next incarnation of Survivor. Send them to the mall in a frantic lemming-like mob to search for post-Thanksgiving bargains. Dazzle them with advertisements for no-money-down, no-payments-for-six-months bargain sales. Awe them with some new form of boneless chicken wing, which you bring to their attention by spending tens of millions of advertising dollars. Send them into fits of raucous laughter, swoons of romantic rapture, screams of roller-coaster excitement, and all manner of other excessive emotions by giving them music, movies, books, and television shows about, well, not much of anything. If at any point they feel like they ought to “get serious” and focus on “important” things, direct them to a polarized national political circus whose opposing sides speak in sound bites and focus on three or four pseudo-issues to the exclusion of everything else. Then, when the people have had enough of this edification, plug them back into the entertainment matrix.

Along with all of this, and on a sadder note, you can do what Barbara Ehrenreich points out in her piece (linked below) about the uselessness of traditional economic indicators for identifying recession or depression in our current circumstance: bring about a situation of two separate and increasingly unequal economic worlds. This, too, will effectively block information and understanding. The rich will love their cushy lifestyles and thus, as we’ve seen, will by and large refuse to acknowledge the problems in an economic scenario that is obviously rigged to blow. After all, who wants to mess with a system that gives you McMansions, private jets, jewelry, and Hummers? The poor, for their part, will know their own increasing desperation all too well, but will be effectively prevented from focusing on its large scale causes by the hard-edged necessity of focusing on day-to-day survival for themselves and their families. Again, the net result will be that members of both strata ignore, fail to understand, or never hear the voices coming through Websites, magazines, and the rare television screen that warn of Trouble Ahead.

Who needs to burn books in a situation like this? I just wish we could have seen the economic troubles coming. But dang it all, they were foreseeable “only in retrospect.”

Oops — no more time for reading and thinking. The new season of Big Brother is starting and I want to catch up on the Cartoon Network. I just hope this darned “recession” thingie that I keep hearing about will leave me with enough money to pay my cable bill!

* * * * *

U.S. economy in serious trouble – Harper’s online, Jan. 27

“Our economy is in serious trouble,” writes Eric Janszen in the cover story for the February Harper’s. “Both the production-consumption sector and the FIRE [finance, insurance and real estate] sector know that a debt-inflation Armageddon is nigh, and both are praying for a timely miracle, a new bubble to keep the economy from slipping into a depression.” A well-known venture capitalist, Janszen is the founder and owner of His is hardly the only voice on the markets today invoking apocalyptic notes . . . . [But] Janszen pulls in for a close-up view of the bubble cycle which, he argued, has come to mark the American economy.

[From Janszen’s cover story:]

The housing bubble has left us in dire shape, worse than after the technology-stock bubble, when the Federal Reserve Funds Rate was 6 percent, the dollar was at a multi-decade peak, the federal government was running a surplus, and tax rates were relatively high, making reflation—interest-rate cuts, dollar depreciation, increased government spending, and tax cuts—relatively painless. Now the Funds Rate is only 4.5 percent, the dollar is at multi-decade lows, the federal budget is in deficit, and tax cuts are still in effect. The chronic trade deficit, the sudden depreciation of our currency, and the lack of foreign buyers willing to purchase its debt will require the United States government to print new money simply to fund its own operations and pay its 22 million employees.

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The U.S. Economy Faces the Guillotine – Newsweek, Feb. 4 issue (cover story)

The Great Global Market Freak-Out of 2008 has everyone asking whether the United States — already on the road to recession — is entering into a protracted period of economic trouble where jobs will be slashed, prices will continue to rise and the dollar will keep falling; and if so, whether the declining U.S. economy will pull the rest of the world down with it . . . Though world markets stabilized by late last week, buoyed by the Fed’s rate-cut action and a proposed stimulus package of $150 billion that was hastily cobbled together by leaders in the House of Representatives and President Bush, the question remains: how ugly will it get, and when will it end? The disappointing jobs and retail-sales data from December indicate the economy has stalled. Given the complex financial machinery that now connects the world’s market, will a U.S. recession quash the booming growth we’ve seen in emerging markets like India and China and tip European economies over the edge? “We are, of course, far short of a Great Depression now,” said Nouriel Roubini, professor of economics at New York University’s Stern School of Business. “But in terms of systemic risk and the risks of a financial meltdown, you almost have to go back that far to find a good analogy.

* * * * *

U.S. recession will dwarf dotcom crash – The London Telegraph, Jan. 28

The recession facing the United States is of a scale that dwarfs the dotcom slump. The slowdown will cause a damaging regulation backlash as governments attempt to compensate for the financial pain facing families. Britain faces a similar plight, though it may avoid as deep a slowdown as the US.

….”We have, as relatively sophisticated, well-developed economies, gotten hooked on credit as never before,” said [Stephen] Roach, speaking about the UK and US. “If we had been running our economies the old-fashioned way, for example, where saving and consumption were funded by income, maybe we wouldn’t be in this mess we are in now.”

….The reason this crunch will be so much worse, he said, is that the chunk of the economy which is shuddering to a halt — homebuilding and housing dependent consumption — is six times bigger than the spending on IT, which triggered the last one.

The magnitude dwarfs anything we saw seven years ago.”

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Traditional economic indicators now meaningless, most Americans already experiencing a “recession” – Barbara Ehrenreich, CommonDreams, Jan. 10

According to a CNN poll, 57 percent of Americans thought we were already in a recession a month ago. Economists may complain that this is only because the public is ignorant of the technical — or at least the newspapers’ standard — definition of a recession, which specifies that there must be at least two consecutive quarters of negative growth in the GDP. But most of the public employs the more colloquial definition of a recession, which is hard times. If hard times have already fallen on a majority of Americans, then “recession” doesn’t seem to be a very useful term any more.

….Now if those great and solemn economic indicators — growth, productivity and employment rates — have become de-coupled from most people’s lived experience, then there’s something wrong with the economists, the economy, or both. The clue lies in the word “most.” We have become so unequal as a nation that we increasingly occupy two different economies — one for the rich and one for everyone else — and the latter has been in a recession, if not a depression, for a long, long time. Not all economists can bring themselves to admit this.

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The black box economy – The Boston Globe, Jan. 27

[According to a handful of financial thinkers and theorists], the drumbeat of bad news over the past year. . . is only a symptom of something new and unsettling — a deeper change in the financial system that may leave regulators, and even Congress, powerless when they try to wield their usual tools.

That something is the immense shadow economy of novel and poorly understood financial instruments created by hedge funds and investment banks over the past decade — a web of extraordinarily complex securities and wagers that has made the world’s financial system so opaque and entangled that even many experts confess that they no longer understand how it works.

….The scale and complexity of these new investments means that they don’t just defy traditional economic rules, they may change the rules. So much of the world’s capital is now tied up in this shadow economy that the traditional tools for fixing an economic downturn — moves that have averted serious disasters in the recent past — may not work as expected.

In tell-all books, financial blogs, and small-circulation newsletters, a handful of insiders have begun to sound the alarm, warning that governments and top bankers may simply no longer understand the financial system well enough to do anything about it.

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Beware our shadow banking system – Bill Gross, Fortune/, November 28, 2007

What we are witnessing is essentially the breakdown of our modern-day banking system, a complex of leveraged lending so hard to understand that Federal Reserve chairman Ben Bernanke required a face-to-face refresher course from hedge fund managers in mid-August.

My Pimco colleague Paul McCulley has labeled it the “shadow banking system” because it has lain hidden for years, untouched by regulation, yet free to magically and mystically create and then package subprime loans into a host of three-letter conduits that only Wall Street wizards could explain.

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New home sales: Biggest drop ever – CNNMoney, Jan. 28

New home sales posted the biggest drop on record in 2007, according to the government’s latest look at the battered housing market, as a year that saw a meltdown in the mortgage market and a drop in home values ended with yet more signs of weakness.

….This decline probably doesn’t accurately capture the weakness in prices for new homes, as about three out of four builders have reported having to pay buyers’ closing costs or offer other incentives such as expensive features for free in order to maintain sales.

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Waving Goodbye to Hegemony – Parag Khanna, The New York Times, Jan. 27

[G]lobalization is not synonymous with Americanization; in fact, nothing has brought about the erosion of American primacy faster than globalization. While European nations redistribute wealth to secure or maintain first-world living standards, on the battlefield of globalization second-world countries’ state-backed firms either outhustle or snap up American companies, leaving their workers to fend for themselves. The second world’s first priority is not to become America but to succeed by any means necessary.

….With or without America, Asia is shaping the world’s destiny — and exposing the flaws of the grand narrative of Western civilization in the process.

….The self-deluding universalism of the American imperium — that the world inherently needs a single leader and that American liberal ideology must be accepted as the basis of global order — has paradoxically resulted in America quickly becoming an ever-lonelier superpower.

….“Accidental empire” or not, America must quickly accept and adjust to this reality [of being effectively hamstrung as an imperial leader in the emerging world order by its geographic isolation from the Eurasian landmass]. Maintaining America’s empire can only get costlier in both blood and treasure. It isn’t worth it, and history promises the effort will fail. It already has.

About Matt Cardin


Posted on January 29, 2008, in Economy, Society & Culture and tagged , . Bookmark the permalink. Leave a Comment.

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